Background and objectives: Diabetes has become an increasingly prevalent and severe public health problem in Nepal. The Nepalese health system is struggling to deliver comprehensive, quality treatment and services for diabetes at all levels of health care. This study aims to review evidence on the prevalence, cost and treatment of diabetes mellitus type 2 and its complications in Nepal and to critically assess the challenges to be addressed to contain the epidemic and its negative economic impact. Design: A comprehensive review of available evidence and data sources on prevalence, risk factors, cost, complications, treatment, and management of diabetes mellitus type 2 in Nepal was conducted through an online database search for articles published in English between January 2000 and November 2015. Additionally, we performed a manual search of articles and reference lists of published articles for additional references. Results: Diabetes mellitus type 2 is emerging as a major health care problem in Nepal, with rising prevalence and its complications especially in urban populations. Several challenges in diabetes management were identified, including high cost of treatment, limited health care facilities, and lack of disease awareness among patients. No specific guideline was identified for the prevention and treatment of diabetes in Nepal. Conclusions: We conclude that a comprehensive national effort is needed to stem the tide of the growing burden of diabetes mellitus type 2 and its complications in Nepal. The government should develop a comprehensive plan to tackle diabetes and other non-communicable diseases supported by appropriate health infrastructure and funding.